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Energy hot potatoes the new president will face

comment ellinas the government should expedite taxing companies’ windfall profits from res
The government should expedite taxing companies’ windfall profits from RES

Cyprus has the resources and potential to generate most of its electricity from RES

Cyprus has a new president. A new era is starting and that includes energy. Many serious old problems remain and are in need of urgent attention. Some energy hot potatoes that must be addressed and resolved to usher in the energy reforms and economic prosperity President-elect Nikos Christodoulides has promised.

Thousands of households are applying or planning to apply to install rooftop photovoltaics to benefit from a substantial reduction in their electricity costs. But as the DSO and TSO warned in their 20 January letter, that attracted the wrath of the outgoing energy minister, Cyprus’ outdated electrical system is at a tipping point. Without upgrading it, installing storage batteries and smart meters, the risk of instability and inevitably power cuts is getting uncomfortably close. Resolving this problem needs to be given top priority.

In the meantime, the government should continue supporting applications for residential photovoltaic (PV) installations, while taking measures to ensure the grid remains stable.

There is also the problem of LNG imports so that EAC can stop burning diesel and heavy fuel oil and replace these with natural gas. It is also delaying private sector gas-fired power generation projects. After a number of postponements, according to Natasa Pilides the agreed project completion deadline is July 2023. This, however, looks highly unlikely and there is no indication when it will be. Similarly, withdrawal of the Dhekelia power plant, without a replacement in place, could aggravate security of electricity supplies. Unless resolved, such delays could result in serious problems with electricity production sufficiency over the next few years.

In the meanwhile, the price of emission allowances has climbed to €94/ton CO2 and the average for 2023 is expected to be over €95/ton CO2. The cost to EAC of buying emission allowances will probably reach €300million this year and of course it will be passed to the consumers through the price of electricity. About 25 per cent to30 per cent of this can be saved if power generation

switches to natural gas. The new energy minister will need to get into grips with this project and expedite completion. And he or she will need to confirm when gas will be available to EAC, transparently – as promised in the president-elect’s programme.

There are alternative options to supply gas to the island. If Chevron, Eni/TotalEnergies or ExxonMobil proceed with development of their discovered gas fields, the government must insist that any such plans include transporting some of that gas to Cyprus by subsea pipeline. The government should make this a prerequisite to approving such developments.

This year should also be the year to bring the tortuous saga of the Aphrodite gas field unitisation agreement to a conclusion. Progress was achieved last year to enable Cyprus’ and Israel’s new energy ministers to conclude it.

In the absence of Cypriot gas field developments in 2023, other offers have been made to bring gas to Cyprus, which include one by Energean.

One project that may progress in 2023 is Energean’s proposal to bring about 3.5 bcm/yr (billion cubic metres) gas from its Israeli gas fields to Vasilikos in Cyprus by pipeline and liquefy it using a floating LNG facility (FLNG) for export to Europe and beyond. Energean has offered to bring additional gas to supply Cyprus. The new energy minister should consider this offer seriously. This, however, depends on Energean making more discoveries from its ongoing drilling programme. It needs more gas.

As development of Cyprus gas fields is not likely to happen this year, the new energy minister should focus its attention to green energy and renewables. Cyprus is near the bottom of Europe in the use of RES for electricity generation, but also in transport. Cyprus also has the second-highest carbon emission intensity of electricity in Europe. Not only this is an inexcusable position to be in, but it is also costing money in penalties and emission allowances. Cyprus needs to take measures to correct this situation, including progressing the Euro-Asia and Euro-Africa interconnectors, and aim to achieve European RES and emission targets. It has the potential to do so and must unlock it.

Not only the EU is considering increasing RES, energy efficiency and emission targets to 2030, but it has agreed to extend the Emissions Trading System to include buildings and road transport. Cyprus will eventually be faced with additional emission allowance costs and with setting and achieving considerably more challenging energy transition targets than it has done so far. Cyprus must prepare for this and take measures now in readiness for meeting these targets.

In order to bring RES prices down, Cyprus must re-introduce open competitive bidding in the next round of RES and green energy projects. It must also expedite completion of the liberalisation of the electricity market.

The government should expedite taxing companies’ windfall profits from RES and use the proceeds to assist vulnerable households with their electricity bills. The outgoing government made promises to do so, but its term is coming to an end and no action has been taken.

The money required to fund green energy investments is available. Sources of funds include:

The Recovery and Resilience fund

The RES levy on the electricity price

The money paid to buy emission allowances, that the European Commission returns to Cyprus

Funds already earmarked, €80 million, for the installation of batteries for the storage of electricity

These should make it possible to implement measures to modernise the grid, install batteries and smart meters and to continue supporting residential PV and green projects.

Cyprus has the resources and potential to generate most of its electricity from RES and in the process bring emissions down to European levels and eventually benefit from lower-cost energy. It should take its cues from Greece that has set ambitious RES targets and is on the way to achieve them.

Preparation of a long-term strategic energy plan is essential to guide Cyprus’ energy transition.

With energy prices expected to remain high for a while yet, the new government must prioritise implementation of the measures outlined in this article and set the conditions to ensure a speedy and successful transition to green energy and economic prosperity.

 

Dr Charles Ellinas is a Senior Fellow at the Global Energy Centre, Atlantic Council

@CharlesEllinas

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